An Oireachtas review of the 13.5pc rate on both public and private homes is listed as a 'year one' action point for the minister.

And it has been included among recommendations by TDs on how to tackle the housing crisis in a draft report by the Dáil's Housing and Homelessness Committee.

However, Mr Noonan is already pouring cold water on the idea. Instead, he wants to investigate a scheme similar to the Home Renovation Incentive, which would provide a relief directly to a first-time buyers.

The minister has said a VAT reduction would be "very complicated to implement" and "may not deliver the relief to the purchaser". He suggested builders would be the ones to take advantage of the relief.

"As the proposal is aimed at targeting the affordability of homes from the position of the purchasers, I do not believe such a VAT amendment would be of assistance,"

Mr Noonan made his position clear in reply to a parliamentary question from Fine Gael backbencher Martin Heydon.

That's despite the measure being included in the Programme for Government, which said TDs would "consider the merits of a temporary targeted reduction of the rate of VAT from 13.5pc to 9pc on new, affordable houses and apartments".

The idea was to reduce the rate in a way that would be "timed to generate the maximum impact on supply and to target principally the purchasers of affordable homes".

Fianna Fáil's John Curran, chairman of the Housing and Homelessness committee, said Mr Noonan had not ruled out the VAT cut when he discussed the matter when he came before TDs last month.

On the VAT reduction idea - which is included in the recommendations of a draft report being produced by the committee - he said: "It came up, and we had detailed discussions including with the minister himself and he did not rule it out when he was at the committee."

Mr Curran said if the VAT reduction was to be implemented it would have to be done in conjunction with other measures, aimed at ensuring the saving was passed on to the purchaser.

He stressed that the committee report leaked over the weekend was a draft - and that while the VAT reduction is being considered, "to say we're committed to it, or not, is really premature at this point."

The idea to cut VAT is backed by the Construction Industry Federation (CIF).

CIF director general Tom Parlon last night said: "We also believe that a 'help to buy' scheme aimed at first-time buyers and some targeted changes to the Central Bank's mortgage rules can together increase the supply of affordable homes to consumers in a sustainable."

Mr Noonan's position is the fourth significant row-back in terms of policy since the Government was formed. Already ministers backtracked on a plan to link child benefit to school attendance, and dropped proposals to force households to pay for green bins.

The Government also abstained on a Fianna Fáil motion seeking to give the Central Bank extra powers to reduce high mortgage interest rates.